Microsoft v. Commission, last take-away points

This is it, it’s over. The last remaining pending issue spawning from the 2004 Decision (the so called “Monti decision”), by which the European Union slapped Microsoft with an unprecedented antitrust remedy, has ended, barring an unpredictable appeal. A decision imposing 899 million euro fine, for non compliance with the obligation to provide complete and accurate interoperability information under Reasonable And Non Discriminatory conditions, was by and large upheld by the General Court in case T-167/08, where I represented the FSFE and the Samba Team, intervening in support of the Commission.

I have now read the decision in its all 26 printed pages. Among many details concerning procedural fine points that would bore to death most of the readers, I have found some points that are worth pointing out, since they confirmed my/our positions that we put forward since 2005. That’s when the whole “implementation” phase started, after the President of the Court of First Instance (that was the General Court called back then) refused to suspend the 2004 Decision pending judgement on the merits.

Innovative character, patents and reasonableness

The parties faced an impossible task, that of defining the value of protocols. Protocols have very little value per se, they are just rules of the road, implementations are where the real value is found. Microsoft’s products being no exception. Then again the 2004 Decision allowed Microsoft to charge reasonable and non discriminatory conditions for accessing the secrets it was hiding away from competitors wishing—nay, forced—to implement them to interoperate with the overly dominant client and server operating system in the PC Client and Workgroup Servers market. If any.

The whole story deserves a book. Here suffices to say that the Court accepted the views of the Commission. It basically means that for all protocols, but a handful of them, no innovation or value could be found and thus Microsoft was not entitled to charge substantial royalties. Hence, anything above a token price was unreasonable. Failure to recognize this assumption was inexclusably a violation of the obligations to put the abuse to a stop. Thus the bulk of the fine must be upheld.

But what for the patented stuff? Alas the Commission here took a conservative approach, conceding, to err on the safe side, that protocols that were protected by patents were presumptively innovative. We contest this idea, but since we could only take the case from where the Commission left it, this was something we could not really challenge, despite we strongly disagree with it. But we did not fail to drop one or two comments against it. Apparently the Court somewhat picked it up, and wrote in paragraph 152:

It should be added that although, in its application of the Convention on the Grant of European Patents, the EPO Enlarged Board of Appeal takes the view that assessment of non-obviousness is to be undertaken solely in relation to claims entailing computer-implemented programs having technical character (see, to that effect, Opinion G 3/08, OJ EPO 2011, 1, point 10.13 of the reasons), Microsoft has not argued that, in a context other than that of a patent grant, the non-obviousness of the technologies at issue cannot be assessed without a prior examination of their technical character. What is more, from a legal point of view, the examination of the technical character of claims entailing computer-implemented programs is a step specific to the procedure for granting a patent, given that computer programs ‘as such’ are not patentable (see, for example, Article 52(2) and (3) of the Convention on the Grant of European Patents).

Honestly, I am not entirely sure I understand what the meaning of this paragraph is. Microsoft argues that the Commission parroted the requirements for obtaining a patent (non-obviousness and novelty) to a domain where these requirements are inapplicable, such as trade secrets (they call it the “patent test“). The Court seems to say that firstly Microsoft has not established which other criteria the Commission should have applied to separate intrinsic value of the innovation from the strategic value of its products being dominant and thus the interoperability being valuable because necessary and secret (which is a result of the abuse to which the measures serve to put a stop). Secondly there is no argument against the need to assess the technical character of the innovation, or lack thereof, as it is done in patents, because software patents “as such” are not allowed under Art. 52(2) of the EPC.

Is the Court hinting that should the patents in hand be examined by a court having jurisdiction, they could be held invalid in case their technical effect could not be maintained, being them software protocols and thus limiting their effects on the pure software domain? Let me dream about it and go one step forward, nicely introduced by it.

Tying patent royalties with discovery of secrets

Since the beginning, we strongly contested the pretence by Microsoft that any party wishing to be disclosed the details of their protocols ought to take a license for the patents reading on those technology. This is absurd. Microsoft said “you cannot see it, because if you see it you will make products that necessarily infringe our patents, and thus you need to take a license from us for those patents, if not, you cannot even read our documents.”

It was apparent to us that there are several logic gaps in this. A party could take the license for the information only, try to produce a prototype and decide it could not work, thus abandoning all efforts to commercialize. Thus no patent would be required. Or could it produce a product inventing around the patent, again not needing a license. It is up to the party, not Microsoft, assess whether this is possible or not. Or, finally, a party could decide that the patent is not valid or does not possibly read on the technology, relying to judicial redress should Microsoft challenge these assumptions in court. The clause “not to challenge” is almost invariably considered anticompetitive by many antitrust regulations and even in the worst version of the proposed terms there was a clause leaving room for any later judicial challenge as to the validity of the licensed rights.

The Commission was convinced by these arguments and clearly said it to Microsoft. But Microsoft challenge this was flowing from the 2004 Decision. The Court also took the same view, and said (paragraph 216)

Furthermore, the Court cannot accept the justification advanced by Microsoft in its correspondence with the Commission, according to which the licensing of ‘necessary claims’ as a condition for the availability of a No Patent agreement would protect licensees from any actions brought by Microsoft before the national courts. Indeed, irrespective of the fact that licensees are in a better position than Microsoft to make the most appropriate choices for protecting their interests, it is for licensees to assume the risks related to their assessment of what are necessary patent claims in the context of the development of products that are interoperable with Microsoft products. As it is, the Commission clearly stated from the start that the grant of licences under the No Patent agreement was without prejudice to Microsoft’s patent rights under its patents (see paragraphs 210 and 211 above).

Amen!

Discriminate against whom compete with you is discrimination

We always said “They are willing to deal with everybody, but those who compete with them.” Meaning, proposing conditions against Free Software is an abuse. Microsoft replied “change your business model to suit our licensing scheme and you’ll be served”, or “Free what? Who the hell are you, what’s your turnover”, or dismissals like this. Apart from annoying, they were wrong.

Again, the Court makes justice of this. Paragraph 228:

Secondly, as is mentioned in point 68 of the annex to the Commission’s letter of 17 March 2005 and as was reiterated at the hearing, ‘open source’ [another way of saying Free Software] developers are among Microsoft’s main competitors.

And in 230:

Fourthly, the practice applied by Microsoft in relation to the rates offered until 21 October 2007 sufficed in itself to render Article 5 of the 2004 decision ineffective with regard to ‘open source’ developers.

Amen, amen!

The infamous patent pledge

One of the points we took pain at demolishing was something very difficult to parse for someone conversant with the matter, but suggestive. Microsoft claimed that by giving access to the entire set of information under the “no patent” agreement (the one excluding rights under patent licenses) and by having issued a pledge that they have offered to developers not to assert their patents, the no patent agreement indeed gave access to patented technologies.

Since the beginning, and still very clearly on various occasions (including this interview on Groklaw), we have said that the pledge had no value at all, since it allows to create software, but not to distribute it for commercial purposes. Anybody conversant with the subject knows that one basic tenet of Free Software, clearly spelled out in the Open Source definition as well, is that there must be no field of use restriction. It was like “you can smoke this joint, you cannot inhale it”, which deprives of all its value such a promise. Not being able to distribute software for commercial purpose is openly against the licensing model of Free Software, totally useless for a developer.

Same conclusions is reached by the Court (paragraph 121):

With regard to Microsoft’s argument that the No Patent agreement gives interested parties the right to use patented technologies, it is sufficient to observe that, according to Section 1.14 of that agreement, ‘Microsoft licensed intellectual property’ includes know-how, industrial secrets, trade secrets, confidential information and copyright with the explicit exclusion of any rights covered by a patent or a patent application. As to Microsoft’s unilateral pledge not to assert any patent rights, the Court notes, like the Commission, that it was made only on 24 October 2007, that is to say, after the end of the period covered by the contested decision. Moreover, as Microsoft acknowledges in its observations on the statements in intervention [the pleadings we interveners filed, in particular us and Red Hat], that pledge covers only non-commercial distribution, excluding commercial distribution by ‘open source’ developers. Finally, the fact remains that the possible disclosure, under the No Patent agreement, of information relating to patented technologies (technologies other than those set out in the annex to the contested decision) does not entail any right for Microsoft’s licensees to implement those technologies in such a way as to infringe the patents concerned. As the Commission explains, that information is publicly available where a patent has been granted, but that does not mean that it is possible for a developer to make use of it. That being so and in view of the distinction between patented and non-patented interoperability information (see recitals 161 to 164 to the contested decision), it cannot be concluded that the No Patent agreement affords Microsoft’s licensees the right to implement patented technologies, which, in any event, they state they do not need in order to develop work group server operating system products.

It’s a minor point, but once again it shows how our positions are solid.

Why reduced fines?

Final point, people could wonder why the 39 millions slash to the 899 million fine? Not exactly peanuts per se, and something it made the whole judicial challenge valuable, although entirely negligible in the overall case and even less an important dent in Microsoft’s cash.

Overall, the Court said Microsoft ought to know by itself what reasonable and non discriminatory should mean. They were late providing the information, until the information were prepared, they could not offer them, thus they could not be in compliance. After that, it was upon them to propose the conditions, both in monetary (the price) and in legal terms (the conditions attached to the license). The Commission could only say “yes” “no” and “coming close, but not quite yet”. But in case the Commission mislead Microsoft, delay or uncertainty caused by this could not be taken into account in the assessment of the fines.

There was a letter dated 1 June 2005, by which Microsoft could in theory have inferred that it could put in place, for a certain period of time, certain practice in the light of the pending case on the merits. It could have been reasonable that the Commission could avoid to demand full enforcement the decision in the event the same was overturned and the effects needed to be rolled back. Hence the fine should be proportionally reduced. The Court says the letter was sufficiently clear and the overall effect of it in Microsoft’s appraisal is vague and speculative (see paragraph 229), but the fact must be kept into consideration to some, limited, extent. Thus the 39 million.

A procedural technicality that had no bearing whatsoever in the overall assessment of the failure to comply with the 2004 Decision, which only marginally affected the case of the Commission, which was in almost its entirety upheld.